To "iPad" or not to "iPad": Transferring trademark rights in China is not as easy as it looks

News media outlets recently have reported that Apple had lost its “IPAD” trademark infringement law suit last December in Shenzhen, a port city in Guangdong, China, and that the “iPad” products would be removed from store shelves across China [1, 2, 3] soon. Apple has since appealed the ruling from the Shenzhen Municipal Intermediate People’s Court, and the hearing on appeal is scheduled at the end of this month. While the legal battle between the parties continues, it is worth to review this legal spat so that other non-Chinese entities can learn from this sour apple experience: be sure to register transfer/assignment of Chinese trademark rights properly.

Background

It is reported that the story began when IP Application Development LLC, a wholly owned subsidiary of Apple, Inc., contacted a company called (唯冠科技深圳) Proview Technology Shenzhen (“Proview Shenzhen”) about some “IPAD” trademarks owned by Proview Shenzhen in 2009 [4, 5]. Mr. Rongshan Yang [6], a Taiwanese, first founded (緯冠電子) Proview Electronics Taiwan Co., Ltd. (“Proview Taiwan”). Yang began his CRT monitor display manufacturing business in the 1990s [7], and, by 1992, he went to Shenzhen to establish Proview Shenzhen to further expand his thriving business[8]. His business became very successful: he had expanded his production facility to a 50,000 square meter assembly plant, listed his company in Hong Kong Stock Exchange under the name Proview International Holding in 1997, and had over 10,000 employees in 2004[9].

Like many businesses, Yang thought to apply for trademarks to promote his products and brand. In 2000, he began this strategy in China and Taiwan, among other countries. With respect to the “IPAD” trademark, Mr. Yang first filed a standard character “IPAD” trademark (application number 1590557) on January 10, 2000[10]. He followed up with a stylized “iPAD” trademark application on July 1, 2000 [11] in Taiwan. This mark was subsequently registered on April 16, 2002 [12] as registration number 01006722, but was later cancelled according to a trademark notice published on July 1, 2003 [13]. He later filed the same stylized trademark in China on September 19, 2000 (application number 1682310) [14]. Both Chinese trademark applications were later registered as Chinese trademarks and owned by Proview Shenzhen.

As discussed earlier, IP Application Development (“British IP”) sought to purchase the rights to about ten “IPAD” trademarks, including the two in China [15], from Proview Shenzhen. It is reported that Proview Taiwan and British IP reached an agreement that included a sale of rights to these “IPAD” trademarks for £35,000[16] in 2009. In addition, it is reported that the agreement included provisions that British IP would not produce anything that competes with Proview's products with the same trademark [17]. The transfer of rights allegedly went from Proview Taiwan to the British IP, and that the deal was completed in Taiwan, not in Shenzhen, China. Today, Shenzhen is the city where the majority of Apple’s iPads, iPhones, and other Mac products are made. In addition, these iPads, iPhones, and Mac products are made by a well-known, although controversial, original design manufacturer: Foxconn Technology Group, a subsidiary of Hon Hai Precision Industry Co. Ltd., another Taiwanese corporation.

Issues

Of course, it is difficult to analyze the disputes in detail without studying the actual sales agreement between the parties. Based on the two email exchanges between Proview Shenzhen and British IP disclosed by the Forbes article [18], it is alleged that there was a misstatement/misrepresentation made by Proview Shenzhen that Proview Shenzhen did not own the "trademark," but that Proview Taiwan did. This does not appear to be accurate based on the trademark status [19] obtained a few days ago. There are also allegations from Yang that he was tricked by British IP that it was not related to Apple, and that, had he known about the relationship, he would not have sold the marks at the lowly £35,000.00. Moreover, what is the wording of the "choice of law" provision, if any? What kind of due diligence work have both sides performed? In any event, without being entangled in the parties’ media posturing and further speculations, one critical question remains: what did, or didn’t, Apple do to secure the proper registration of transfer/assignment of trademark rights in China?

In the press release dated December 6, 2011 at 7:04:34 pm by the Shenzhen Municipal Intermediate People’s Court [20] about the dispute between plaintiffs (Apple Inc. and (British) IP Application Development Inc.) and defendant Proview Shenzhen, the court found the following facts and shed some light on this issue [21]:

Proview Shenzhen is a Chinese subsidiary of the publicly traded Proview International Holding company;

Proview Shenzhen received the registrations of two trademarks: "iPad" (stylized) and "IPAD" in 2001;

Both trademarks are associated with products in class 009;

In early 2009, plaintiff, the British IP, started negotiations with Proview International Holding company’s subsidiary in Great Britain about acquisition of all of “Proview” trademarks, including the two in question;

By the end of 2009, British IP signed a trademark transfer agreement with Proview International Holding’s subsidiary in Taiwan, Proview Taiwan. In exchange of £35,000.00, Proview Taiwan agreed to transfer the rights to all trademarks owned by “Proview,” including the two in question;

In February 2010, Plaintiffs Apple, Inc. and British IP signed a “Rights Transfer Agreement” assigning all rights to relevant trademarks (i.e., all relevant “IPAD” and "iPAD" trademarks transferred from Proview Taiwan to British IP) for £10.00; and

Up to this date, the transfer registration process has not initiated.

According to the press release above, plaintiff alleged that the agreement is a collective transaction with the Proview International Holding and that, although the agreement was signed by Proview Taiwan, Proview Taiwan was an agent of the defendant and the defendant is bound by the provisions of the agreement. As such, the plaintiff asked the court to hold that Apple owns the rights to these trademarks.

The court, however, found that plaintiffs who sought to acquire trademark rights through business transactions should be keenly aware of the importance of compliance with Chinese laws and regulations. In particular, with respect to establishing trademark transfer contracts, one must complete the necessary trademark transfer registration process. Moreover, the agreement was agreed to by Proview Taiwan and British IP, and the defendant Proview Shenzhen did not participate in the negotiation, nor did it authorize others to act on its behalf. Therefore, the agency relationship between the defendant and the signing party was not established, and the defendant was not bound by the agreement.

Hence, the court held that plaintiff’s complaint is not supported by facts and law.

If Apple/British IP believed it has properly obtained the rights to the two Chinese trademarks, why didn't British IP initiate the transfer registration shortly after the purchase and subsequently transfer the rights to Apple? Apple certainly did the right thing around early 2010 after it acquired the "IPAD" trademark from Fujitsu in the US [22, 23] and recorded an assignment with the USPTO.

Law/Regulations

According to the current Regulations for the Implementations of Trademark Law of China [24] (which is available in English in its entirety), Chapter 4 specifically governs the “Modification, Assignment and Renewal of Registered Trademarks”:

Article 24: Where the name or address of a trademark registrant or any other registration matter is to be modified, the applicant shall submit an application for modification to the Trademark Office. The Trademark Office shall, upon approval, issue a corresponding certification to the trademark registrant and publish the modification; if no approval is granted, the applicant shall be notified in writing and the reasons therefor shall be given. Where the name of a trademark registrant is to be modified, the modification certification issued by the relevant registration authorities shall be also submitted. If the modification certification is not submitted, it may be submitted within 30 days from the date on which the application is filed; if it is not submitted at the expiry of the time limit, the application for modification shall be considered abandoned and the Trademark Office shall notify the applicant in writing.

Where the name or address of a trademark registrant is to be modified, the trademark registrant shall make the modification in respect of all its registered trademarks in a lump; if they are not so modified, the application for modification shall be considered abandoned and the Trademark Office shall notify the applicant in writing.

Article 25: When a registered trademark is to be assigned, both the assignor and assignee shall jointly send an application for assignment of the registered trademark to the Trademark Office. The assignee shall go through the formalities for the application for assignment of the registered trademark. The Trademark Office shall, upon approval of the application for assignment of the registered trademark, issue the assignee a corresponding certification and publish the assignment.

Where a registered trademark is to be assigned, the trademark registrant shall assign in a lump all of its trademarks that are identical or similar to each other in respect of the same or similar goods; if they are not so assigned, the Trademark Office shall notify it to rectify the situation within a specified time limit; if it fails to rectify it at the expiry of the said time limit, the application for assignment of the registered trademark shall be considered abandoned, and the Trademark Office shall notify the applicant in writing.

With respect to applications for the assignment of registered trademarks, which may produce misleading, confusing or other adverse effects, the Trademark Office shall refuse them, and shall notify the applicants in writing and give the reasons therefor.

Article 26: Where the exclusive right to use a registered trademark is transferred due to the reasons other than assignment, the party who accepts the transfer of the exclusive right to use the registered trademark shall, by producing the relevant evidential documents or legal instruments, go through the formalities of the transfer of the exclusive right to use the registered trademark with the Trademark Office.

Where the exclusive right to use a registered trademark is transferred, the right holder shall assign in a lump all of its trademarks that are identical or similar to each other in respect of the same or similar goods; if they are not so transferred, the Trademark Office shall notify it to rectify the situation within a specified time limit; if it fails to rectify it at the expiry of the said time limit, the application for transfer of the registered trademark shall be considered abandoned, and the Trademark Office shall notify the applicant in writing.

Based on the above provisions, there are two important steps for both assignment and transfer:

Apply for registration of the transfer or assignment of rights; and

Obtain the approval of such registration application from the Trademark Office.

It may be difficult to imagine that sophisticated corporations like Apple would fail to initiate and to complete the necessary registration process. But, it was certainly not the first multinational corporation that failed to adhere to the letters of the regulations. Danone and Hanzhou Wahaha Group agreed to form Wahaha Joint Venture Company in which Danone would pay Hanzhou Wahaha Group 100 million RMB in exchange for the exclusive rights to the Wahaha trademarks in China [25]. However, the registration of the trademarks was not approved by the proper authority, and the joint venture agreements failed to provide any remedies to resolve any "approval failure" issue. By 2007, the parties had spent millions in legal fees raging law suits in Europe, China, and the US. At the end, the parties settled after the invisible hands from high ranking government officials in China and France intervened.

Conclusion

Some suggest this matter should be dealt with politically [26], given Apple’s status in worldwide consumer electronics. But that suggestion would rather be ironic: mainstream media has long accused that Chinese courts are not an independent organ of the Chinese central government. They are merely another mouthpiece. While the Shenzhen Municipal Intermediate People’s Court’s ruling against Apple in favor of a Chinese entity founded by a Taiwanese businessman may appear to be a victory for the Chinese, the Chinese may not have anything to gain. The court and its municipal government are keenly aware of the beneficial and economic impact that Apple manufacturing brings to the local and national economy. The court could have bowed to the pressure from Apple and the aurora surrounding its products by siding with Apple. But the court upheld the law.

As the appeal is pending, both sides should respect the legal process and allow the courts to conclude their work. For those who are familiar with the Chinese appeals practice, the appellate court can and may review additional factual evidence on appeal. Notwithstanding the legal wrangling, the key to properly obtaining Chinese trademark for non-Chinese entities continues to be this: it is not enough just to purchase the rights to trademarks, it is critical to obtain the actual and successful registration of Chinese trademark before the Trademark Office of The State Administration For Industry & Commerce of the People’s Republic of China.

Afterthought

In addition to the two Chinese “IPAD” trademarks that Apple wishes to obtain, Apple (in Chinese character: 苹果公司) has also filed about 15 additional “IPAD” trademarks in China [27]. In addition, Apple is not having much success with “IPAD” trademark in the US either. As noted above, Apple purchased the right to “IPAD” trademark (registration number 3776575), which was filed by Fujitsu back in 2003 for its “IPAD” product at the time with the following description: “Hand-held computing device for wireless networking in a retail environment”. However, that was all Apple could get in terms of “IPAD” trademark in the USA. Apple, through its subsidiaries IP Application Development Inc. and Slate Computing (USA) Inc., has filed about 10 other “IPAD” trademark applications [28, 29], but has yet to obtain registrations for any of these pending applications.

Today, February 20, 2012, Apple has hired a well-respected Chinese law firm, King and Wood, to issue a letter (both in Chinese and English) [30] disputing some of the statements released by Mr. Yang and others in the past few days. King and Wood is one of the platinum founding donors of the Chinese Intellectual Property Resource Center.

6. 唯冠楊榮山移師大陸再造"深圳神話"[Yang Rongshan of Proview Technology (Shenzhen) Co. repositions to mainland to build a "Shenzhen’s Fairy Tale"], Huaxia.com (June 3, 2004, 01:15 pm), http://big5.huaxia.com/sw/zjts/00208337.html. Note: English translation within the square brackets is provided by author and not an official translation.